Business confidence nears 15-year high

Cranes are starting to make an appearance on the Auckland skyline as the building and property market starts to boom again. Photo / Greg Bowker

New Zealand business confidence rose to its highest in almost 15 years this month, adding to evidence the economy is picking up pace.

A net 64.1 per cent of firms are optimistic about general business conditions, up from 60.5 per cent last month, according to the December ANZ Business Outlook survey. Firms seeing a pickup in their own business activity rose to a 19-year high of 53.5 per cent from 47.1 per cent last month.

ANZ's composite indicator of business and consumer confidence indicates the two sides of the production-spending equation are in alignment, with the potential for annual economic growth to accelerate by more than 5 per cent over the first part of 2014.

"That augers well for an economic expansion with real legs, said ANZ New Zealand chief economist Cameron Bagrie.

Confidence in the agriculture sector surged to a 19-year high of 54.5 per cent, while manufacturing confidence hit a 15-year high of 56.1 per cent and services reached the highest reading in 14 years of 68.5 per cent. Sentiment in the construction sector at 66.7 per cent and retailing at 65.4 per cent remained "extremely elevated", ANZ said.

The survey results are "incredibly strong" with firms' profit expectations pushed beyond last month's 19-year high to 39.7 per cent from 37.3 per cent. Employment intentions are the strongest in 19 years at 24.7 per cent while residential construction intentions at 66.7 per cent are the highest in almost 24 years and commercial construction intentions are robust at 41.2 per cent.

Bagrie said the last time the survey recorded such high readings in 1994 and 1999, the economy was in full swing with GDP growth of more than 5 per cent and the latest survey results "portend a booming economy".

"All this momentum is occurring despite headwinds from an elevated New Zealand dollar and overwhelming expectations interest rates are going to be moving up," Bagrie said. A net 71 per cent of survey respondents expect higher interest rates over the year ahead and a net 31 per cent of firms expect to raise prices.

One of the biggest challenges over the coming year will be ensuring supply can meet demand so inflation remains in check, Bagrie said.